China Is Poorer Than We Thought, But No Less Successful in the Fight Against Poverty

Chen, Shaohua; Ravallion, Martin

Our previous estimates of global poverty measures revealed a substantial contraction in the incidence of poverty in China over the period 1981-2004; the latest update in Chen and Ravallion (2007) indicates that the proportion of China's population living below an international poverty line of $1.08/day at 1993 prices fell from 64% in 1981 to 10% in 2004; the number of poor by this measure fell by about 500 million. This international poverty line was converted to local currency using the 1993 Purchasing Power Parity (PPP) rate for China produced from the country-level price surveys done by the International Comparison Program (ICP). The PPP gives the conversion rate for a given currency into a reference currency (the $US) designed to assure parity in terms of purchasing power over commodities. However, these calculations for China rested on an estimate of the country's PPP for 1993 that was not based on a 1993 price survey, but rather was an updated version of an older (1986) PPP for China. China's estimated level of poverty in 2004 was thus rooted in a PPP rate that was almost 20 years old, and even then was not drawn from the ICP. In this light, the new estimates in World Bank (2008) of China's PPP rate for 2005, based on the ICP price survey for that year, are undeniably important new data. The results for China's first participation in the ICP have already attracted considerable attention, as they suggest that China's economy in 2005 is 40 percent smaller than we thought. For example, Keidel (2007) claims that the new PPP for China adds 300 million to the count of that country's poor. Some observers have gone further to claim that the new PPP casts doubt on the extent of China's, and (hence) the world's, progress over time against poverty. All this begs for a more careful scrutiny of China's new PPP and its implications for the extent of poverty in the country and how much progress it has made against poverty. This paper focuses solely on the implications of the new consumption PPP released by World Bank (2008). Our analysis combines the results of the 2005 ICP with a new compilation of national poverty lines for developing countries and tabulations of the distribution of consumption and income in China provided by the National Bureau of Statistics (NBS), based on their household surveys, and our interviews with staff of NBS.



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Academic Units
Initiative for Policy Dialogue
Initiative for Policy Dialogue
Initiative for Policy Dialogue Working Paper Series
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October 31, 2012